Major crises – such as earthquakes – end with reconstruction. Where are we with the financial crisis that began in the Anglo-Saxon world on August 9, 2007, and became European three years later? Beyond the controversies on macroeconomic policies (il Tapering monetary policy and fiscal austerity in the Eurozone) what matters most are the new rules: Dodd-Frank and Volcker rule in the USA; Banking union and new rules on banking activity in Europe. Here we have significant news, because after a year of hibernation (the Liikanen Report dates back to October 2012), the European Commission published on 29 January the Proposal for a Regulation on "structural measures that improve resilience of European credit institutions". In other words, it has been established that banking supervision passes to the ECB: now we should also decide what activities the banks can carry out. Better late than never.
The new rules represent a cross between the international rules (the Volcker rule separates investment activities, private equity e trading owner from the lending business) and the Liikanen Report (which, unlike the latter European regulation, had to apply to all banks regardless of the model of business, therefore including the mutual banks and cooperatives). The regulation, to which further rules are added to ensure greater transparency also in the shadow banking, involves the largest banks (Single Market Commissioner Michel Barnier stated that “Our aim is to avoid the presence of banks that are too big to fail, too expensive to rescue and too complex to restructure”) and is aimed at to reduce the risks related to proprietary trading activities that could compromise financial stability. In particular, the new rules concern the activity of proprietary trading, i.e. investments only for one's own benefit, with no repercussions on customers or the economy in general. The only exception is sovereign debt trading, which is always allowed.
Contents of the regulation
- Objectives, object and purpose of structural separation (Chapter I): the aim is to improve financial stability in the Union through a structural reform of the big banks (too-big-too-fail, too big to fail) by imposing a ban on proprietary trading and the potential separation of some businesses. European banks recognized as being of global systemic importance that have balance sheet assets in excess of €30 billion and trading assets and liabilities in excess of €70 billion or at least 10% of total assets are involved. It also clarifies how to calculate "trading activities" and establishes broad territorial criteria (the regulation applies to EU credit institutions and their EU parents, to their subsidiaries, branches and branches, even if established in third countries) to ensure a level playing field and avoid the transfer of activities outside the Union to circumvent the requirements.
- Prohibition of proprietary trading (Chapter II) – very widespread before the crisis (it represented, at the time, 15% of a bank's activity, now down to 5%) – for a credit institution and companies of the same group. It also defines the proprietary trading strictly speaking (activities of offices, units, divisions or individual traders specifically dedicated to taking positions to make a profit on their own account, without any connection to the client's or institution's risk hedging business), and what activities and subjects are excluded.
- Potential separation of some commercial activities (chapter III): the competent authorities must supervise the commercial activities of banking groups and will be able (but in some cases will have to) compel banks to divest a subset of assets (market-making, risky securitisations, complex derivatives) to separate trading legal entities within the group, if certain parameters are exceeded. The basic principle of the regulation is that institutions taking deposits within banking groups can only engage in these activities until the competent authority decides that they must carry on their business as a separate business entity.
- Entities subject to the criteria defined in chapters II and III (chapter IV), where the rules for calculating the thresholds, commercial activities and the activities of the competent authorities are clarified.
- Compliance: competent bodies and authorities (chapter V): since most of the banks involved operate in different countries and are therefore supervised by different authorities, to ensure that the reforms are implemented effectively and efficiently, the final choice on structural separation decisions rests with the lead supervisor with responsibility for the consolidated group. The lead supervisor must, before making any choice, consult the country authority of the most important subsidiaries of the group.
- Relations with third countries (Chapter VI): the adoption of delegated acts is envisaged to recognize as equivalent the structural reforms – which comply with certain conditions – of third countries. Sanctions and administrative measures (chapter VII): in case of violation of the regulation.
- Report and review (chapter VIII) to assess whether the above rules have achieved the aim and objectives of the structural reform effectively and efficiently.
- Timeline (entry into force of the ban of proprietary trading in 2017 and the rules on segregation of activities in 2018) to adopt and implement the different provisions.
- Finally, a table follows which assesses the budgetary and financial impact of the regulation.
What does it result for our banks.
A year ago, in our "The future of banks", we wondered if and when a coordination regulation between the various European regulations would arrive. Our main problems being: is part of our banking migrating to London, why will it be better regulated there? And does this EU regulation impose something new on us? In fact, the Barnier regulation in Italy - where it will certainly involve Unicredit and Intesa San Paolo - will not lead to major changes: the new supervisory rules re-propose the same model already typical of the Bank of Italy, and our banks have never had the excesses of financialization typical of Anglo-Saxon banks. Our problems are linked to non-performing loans (gross loans reached 149,6 billion in November, with an annual increase of almost 22,8%) and the deleveraging to be completed: the new banking rules will therefore not have much impact on these problems.
Compared to other European countries, which have already undertaken a series of reforms of the banking system, the new regulations are less rigorous than the English ones (where the separation between deposit and loan banking activity and investment activity is envisaged), but more stringent than those adopted by Germany and France, where the legislation is more similar to the Volcker reform.
This last proposal (but we will have to know the version then approved) therefore adds nothing to systems such as the Italian and English ones, and implies a revision of the German and French ones: in any case we remain far from uniformity and coordination of the rules at European.
